Full Judgment Text
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PETITIONER:
COLLECTOR OF CENTRAL EXCISE, AHMEDABADETC. ETC.
Vs.
RESPONDENT:
ASHOKA MILLS LTD. ETC. ETC.
DATE OF JUDGMENT08/09/1989
BENCH:
RANGNATHAN, S.
BENCH:
RANGNATHAN, S.
OJHA, N.D. (J)
CITATION:
1990 AIR 33 1989 SCR Supl. (1) 86
1989 SCC (4) 81 JT 1989 (3) 576
1989 SCALE (2)553
ACT:
Central Excises & Salt Act, 1944/Central Excise Rules,
1944--First Schedule Item 18E and 19/Rules 96 V & W and
Notification No. 110/61 dated 20.4.61, No. 146/77 dated
18.6.77, No. 62/72 dated 17.3.72--’Yarn all sorts not other-
wise specified’--Interpretation of--Duty--Levy Special
procedure--Availability of--Yarn produced after 17.3.72
cleared for captive consumption before 24.7. 72 but lying in
various departments and not cleared as on 24.7. 72.
HEADNOTE:
The department took the view that in respect of the
yarn manufactured between 17.3.72 and 23.7.72 the assessee
is liable to pay the normal duty payable on yarn under Item
18E so long as the fabric manufactured out of such yarn
remained uncleared from the factory as on 24.7.1972. On the
other hand the assessee’s contention was that excise duty on
yarn is attracted as soon as it is produced and cleared for
captive consumption.
The Customs, Excise & Gold Control Appellate Tribunal
(CEGAT) accepted the contention of the assessee and held
that the yarn cleared for captive consumption during the
period from 17.3.72 to 23.7.72 in terms of the special
procedure was entitled to the benefit of the rate fixed
under Notification No. 62/72-CE dated 17.3.72 and that no
further duty was payable on that quantity of the yarn and a
consequential refund to the appellants was directed. Ag-
grieved by the order of the Tribunal the department pre-
ferred these appeals to this Court. While dismissing the
appeals and upholding the view taken by the Tribunal, this
Court,
HELD: Rules 96 V & W of the Central Excise Rules,
deal with two items: cotton yarn or yarn falling under item
18E of the First Schedule and woollen yarn. Normally, under
the schedule to the Act, woollen yarn was being charged to
excise duty on an ad valorem basis while cotton and other
yarn was being assessed on weight basis. [92C]
Yarn is an excisable commodity and but for the special
procedure
87
and notification, duty thereon is leviable at the point of
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production and clearance for captive consumption. The duty
attached itself at the point of production and clearance of
the yarn. The notification does not alter this position. It
does not shift the incidence of duty from yarn to the woven
fabric. [94E-F]
The proviso to Rule 96-W does not help the Revenue. It
only contemplates cases where there is a change in the rates
prescribed under the notification between the date of pro-
duction of the yarn and the date of clearance of the fabric.
[94H; 95A]
The words of the proviso can be extended to cover a case
where the notification itself has ceased to apply by the
date of clearance of the fabric. To apply the proviso to
such a case would result in its applicability to a totally
different situation. It would involve a comparison of un-
likes. [95E]
Crown Spinning & Manufacturing Co. Ltd. v. Collector,
[1983] E.L.T. 2433, referred to.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 2436-37 of
1987 etc.
From the Judgment and Order dated 2.4.1983 of the Cus-
toms, Excise and Gold Control Appellate Tribunal, New Delhi
in Appeal No. ED (T)/SB/64/76-D and ED(SB)(T) A. No. 61/76-D
in Order Nos. D- 169 and 170 of 1983.
V.C. Mahajan, A. Subba Rao and C.V. Subba Rao for the
Appellant.
Soli J. Sorabjee, P.H. Parekh, M.K. Pandit and J.P.
Pathak for the Respondent.
The Judgment of the Court was delivered by
RANGANATHAN, J. These are three appeals by the Collector
of Central Excise. Two of them relate to Ahmedabad and one
to Bombay. The Ahmedabad appeals are in the case of M/s
Ashoka Mills Ltd. and the Bombay appeal is in the case of
M/s Mafatlal Fine Spinning and Manufacturing Co. Ltd. These
appeals raise a very interesting question.
88
The assessee respondents are companies manufacturing
yarn and cotton fabrics, the manufacture of yarn being a
step in the process of. the manufacture of cotton fabrics.
Cotton fabrics (which expression included all fabrics con-
taining more than 40% by weight of cotton) were subject to
excise duty on an ad valorem basis under item 19 of the
tariff in the First Schedule to the Central Excises & Salt
Act, 1944 (hereinafter referred to as ’the Act’). "Yarn, all
sorts, not elsewhere specified ..... "became liable to
duty under item 18E of the First Schedule under the Finance
Act, 1972 w.e.f. 17.3.72. The consequence was that, from
17.3.72, the yarn which was being produced by the appellants
became liable to duty under item 18E while the fabric manu-
factured by them was dutiable under item 19.
The Central Government decided to give two categories
of assessees the benefit of the provisions of Rules 96 V & W
of the Central Excise Rules: (i) assessees manufacturing
woollen yarn; and (ii) assessees manufacturing cotton yarn
or yarn falling under item 18E and using the same wholly or
partly, in the manufacture of fabrics in their own factory.
These rules appeared in Chapter V of the Rules as Section E.
VI, headed "Cotton yarn, woollen yarn, yarn falling under
tariff item 18E--Special Procedure". This Section in the
rules was inserted by notification No. 110/61 dated 20.4.61
and omitted by notification No. 146/77 dated 18.6.77. They
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read thus:
"96-V Application to avail of special proce-
dure ,--
(1) Where a manufacturer who manufactures
cotton yarn, yarn falling under item 18E of
the First Schedule to the Central Excises &
Salt Act, 1944 (1 of 1944) or woollen yarn and
in the case of cotton yarn of yarn falling
under item 18E of the First Schedule to the
Central Excises & Salt Act, 1944 (1 to 1944)
uses the whole or part of the yarn manufac-
tured by him in the manufacture of cotton
fabrics in his own factory, makes in the
proper form an application to the Collector in
this behalf the special provisions contained
in this section shall, on such application
being granted by the Collector, apply to such
manufacturer in substitution of the provisions
contained elsewhere than in this section for
the period in respect of which the application
has been so granted.
(2) Such application shall be made so
as to cover a period of not less than six
consecutive calendar months, but may
89
be granted for a shorter period in the discre-
tion of the Collector.
(3) If at any time during such period, the
manufacturer does not want to avail himself of
the special provisions contained in this
section, he shall give a notice in writing to
the proper officer of his intention at least
one week in advance; and if he fails to give
such notice he shall be precluded from avail-
ing himself of such provisions for a period of
6 months from the date of such failure.
96-W. Discharge of liability for duty on
payment of certain
Sum,-
(1) Having regard to the average production of
cotton fabrics from one kilogram of cotton
yarn or yarn falling under item 18E of the
First Schedule to the Central Excises & Salt
Act, 1944 (1. to 1944) or the average prevail-
ing prices of woollen yarn the Central Govern-
ment may, by notification in the Official
Gazette, fix from time to time a rate per
square metre of the cotton fabrics produced or
per kilogram of the woollen yarn produced, as
the case may be, subject to such conditions
and limitations as it may think fit to impose,
and if a manufacturer whose application has
been granted under rule 96V pays a sum calcu-
lated according to such rate, in the manner
hereinafter laid down, such payment shall be a
full discharge of his liability for the duty
leviable on the quantity of cotton yarn of
yarn falling under item 18E of the First
Schedule to the Central Excises & Salt Act,
1944 (1 of 1944) manufactured by him and used
in the manufacture of fabrics in his factory
or the quantity of woollen yarn produced by
him:
1. Provided that if there is an alteration in
the rates of duty and/or in the limit of
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exemption, the sum payable shall be recalcu-
lated on the basis of the revised rates and/or
exemption limit from the date of alteration
and liability for duty leviable on the quanti-
ty of cotton yarn or yarn falling under item
18E of the First Schedule to the Central
Excises & Salt Act, 1944 (1 to 1944) used in
the manufacture of cotton fabrics or woollen
yarn produced shall not be discharged unless
differential duty is paid.
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(a) in the case of such cotton yarn, or yarn
falling under item 18E of the First Schedule
to the Central Excises & Salt Act, 1944 (1 of
1944) as on the date of clearance of the
aforesaid cotton fabrics, and
(b) in the case of woollen yarn, as on the
date of clearance of such woollen yarn from
the factory of the manufacturer; should,
however, the amount of duty so recalculated be
less than the sum paid, the balance shall be
refunded to the manufacturer.
(2) The rate specified under sub-rule (1)
shall be separately and distinctly notified,
and shall be separately and distinctly ap-
plied, in respect of (i) cotton yarn and (ii)
woollen yarn.
(3) The sum payable under sub-rule (1) in
respect of cotton yarn shall be paid by the
manufacturer along with the duty on fabrics in
the manner prescribed in rule 52.
Provided that where cotton fabrics are allowed
to be removed in bond under rule 96-D from one
factory to another (hereinafter referred to as
the processing factory) for processing and the
cotton fabrics also processed are cleared from
the processing factory, the duty payable under
sub-rule (1) shall be paid by the licencee of
the processing factory.
A notification as envisaged by Rule 96V was
issued, being notification No. 62/72, on
17.3.72. It reads as follows:
"In pursuance of rule 96-W of the Central
Excise Rules, 1944, the Central Government
hereby directs that the rate of duty in re-
spect of yarn containing partly more than 40
per cent by weight of cotton and partly any
other fibre or fibres, the wool or silk con-
tent being less than 40% by weight of such
yarn (where such yarn contains wool or silk)
and falling under Item No. 18E of the First
Schedule to the Central Excises and Salt Act,
1944 and of the description specified in
column (2) of the Table hereto annexed, shall
be the rate specified in the corresponding
entry in column (3) of the said Table.
91
THE TABLE
S. No. Description of yarn Rate
(1) (2) (3)
Paise per square metre
of the fabric made.
1. Yarn used in making super- 20.00
fine fabrics.
2. Yarn used in making fine fabrics. 12.00
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3. Yarn used in making medium 6.00
fabrics.
4. Yarn used in making 4.40
medium fabrics.
5. Yarn used in making coarse fabrics. 2.20
6. Yarn used in the manufacture 4.40
of cotton fabrics generally
described as Malimo type fabrics
or fabrics in which warp and weft
yarns are connected and fastened
together by chain stiches baned
against each other.
7. Yarn used in making embriodery The duty for the
in the place in steps or in time being leviable
motifs. on yarn contained in
the base fabrics if
not already paid.
8. Yarn used in making fabrics -do-
impregnated or coated with
preparation of cellulose
derivations or of other
artificial plastic materials.
Provided that if the manufacturer elects to
avail himself of the special provisions con-
tained in rule 96-W aforesaid, the procedure
set out in that rule in this behalf shall
uniformly apply to all the yarn of the de-
scription specified in the above table and
used by him in the production of cotton fab-
rics in his factory.
92
Explanation:
For the purpose of this notification
(i) "base fabrics" shall have the same meaning
as assigned to it in tariff item No. 19 of the
first schedule to the Central Excises & Salt
Act, 1944 (1 to 1944)
(ii) the average count of yarn in a fabric
shall be deemed to be the count of all yarn
contained in such fabric."
Rules 96 V & W, it will be noticed, deal with two items:
cotton yarn or yarn falling under item 18E of the First
Schedule and woollen yarn. Normally, under the Schedule to
the Act, woollen yarn was being charged to excise duty on an
ad valorem basis while cotton and other yarn was being
assessed on weight basis. The rules cited above and the
notification referred to, however, provided an alternative,
on the application of the assessee. On a notification being
issued and the assessee’s option being exercised, duty on
woollen yarn became payable on the basis of weight at the
rates prevalent at the time of clearance of the yarn from
the factory. If the rates had gone up in the meantime, the
assessee had to pay the differential duty and if the rates
had gone down, the assessee would be entitled to a refund.
Thus the assessee was given the option of paying the duty on
the woollen yarn on weight basis at the rates prevalent on
the date of their clearance. We are not concerned with this
here. So far as cotton and other yarn is concerned, the
duty, in cases governed by a notification and application
under this Section, would be levied not on the weight of the
yarn manufactured but on the extent of fabric manufactured
from such yarn. Naturally, this duty could be calculated
only after the fabric had been manufactured, on the basis of
the area of cloth or fabric manufactured. This would create
a doubt whether the duty on yarn under the scheme is payable
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on the production of yarn or on the date of clearance of the
fabrics. Sub-section (3) of section 96-W clears this doubt.
It provides that the duty would be paid along with the duty
payable on the fabrics under rule 52. This clearly shows
that it is not the incidence of liability that is shifted
but only the collection of the duty.
The purpose of the rules and notifications may be
briefly set out thus. As already mentioned both yarn and
fabrics are individual items exigible to duty. Two levies on
the yarn as well as on the cotton fabrics, on different
bases, may not only impose an undue burden on
93
the manufacturer but may also unnecessarily complicate the
process of collection of duty at two stages. The Act, there-
fore, envisages what has been described as a scheme of
"compounded levy". Under this scheme, the excise duty on the
yarn is collected only as and when the manufactured goods,
namely, cotton fabrics are cleared from the factory and no
duty is collected at the stage of the production or manufac-
ture of yarn. The duty paid as per this notification is
treated as a full discharge of the assessee’s liability for
the duty leviable on the yarn used by the assessee for
manufacture of fabrics in its factory. To sum up briefly,
rules 96-V and 96-W, together with the notification issued
thereunder are concerned only with the issue of the excise
duty leviable in respect of yarn and what they seek to
achieve are:
(a) the alteration of the basis of duty
from a rate calculated on the weight of yarn
produced to a calculation on the basis of the
area of fabric manufactured therefrom;
(b) the postponement of the collection
of the duty till the point of clearance of the
fabrics; and
(c) the levy of the duty at rates
prevalent not on the date of production of the
yarn but on the date of clearance of the
fabric.
If the notification of 17.3.1972 had continued in force,
there would have been no difficulty in its application.
However, on 24.7.1972, the Government issued Notification
No. 169 of 1972, the result of which was that the special
procedure referred to above was made inapplicable to the
type of yarn manufactured, used for weaving and cleared by
the appellants. The short question in these appeals is as to
the effect of this omission in respect of yarn produced
after 17.3.72 and cleared for captive consumption before
24.7.72 but lying in various departments at various stages
of manufacture or in the form of cotton fabrics not yet
cleared as on 24.7.72. The Department has taken the view
that in respect of the yarn manufactured between 17.3.72 and
23.7.72 the assessee is liable to pay the normal duty pay-
able on yarn under Item 18E so long as the fabrics manufac-
tured out of such yarn remained uncleared from the factory
as on 24.7.72. On the other hand, the assessee’s contention
is that excise duty on yarn is attracted as soon as it is
produced and cleared for captive consumption though kept in
abeyance and collected, so long as the notification was in
force, till the corresponding fabrics were cleared. The
assessee is not liable to pay any higher duty in respect
thereof unless one could bring it within the terms of the
proviso to the notification. The short contention is that
94
the proviso applies only in a case where the notification
under section 96-W continues to be in force and there is a
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change in rates under the scheme of compounded levy intro-
duced by the notification but not where the difference in
rates is one between those prevailing on the date of produc-
tion of yarn under the scheme and the date of clearance of
the goods after the abandonment of the scheme.
The Customs, Excise & Gold Control Appellate Tribunal
(CEGAT) accepted the contention of the assessee following
its earlier decision dated 2.4.1983 in M/s Raipur Manufac-
turing Co. v. Collector of Central Excise, Ahmedabad, [1988]
33 E.L.T. 542. It held that the yarn cleared for captive
consumption during the period from 17.3. 1972 to 23.7. 1972
in terms of the special procedure was entitled to the bene-
fit of the rates fixed under Notification No. 62/72-CE dated
17.3.1972 and that no further duty was payable on that
quantity of the yarn. A consequential refund to the appel-
lants was directed. We notice that this order of the Tribu-
nal was followed by another Bench of the Tribunal in its
order dated 20.7.1983 and this decision had been reported
much earlier as Crown Spinning & Manufacturing Co. Ltd. v.
Collector, [1983] E.L.T. 2433. The Collector, Central Excise
has preferred these appeals.
We have come to the conclusion that the view taken by
the Tribunal has to be upheld. ’Yarn’ is an excisable com-
modity and it is common ground before us that, normally and
but for the special procedure and notification, duty thereon
is leviable at the point of production and clearance for
captive consumption. On that view, the duty attaches itself
at the point of production and clearance of the yarn. The
notification does not alter this position. it does not shift
the incidence of duty from yarn to the woven fabric. It
still talks only of the liability of the yarn to duty and
proceeds to provide only for its postponed collection. If we
are right on this, the duty on such yarn--produced between
17.3.72 and 24.7.72--has to be determined in accordance with
the rates specified in the notification, though such rates
may have to be calculated in terms of the area of the fabric
cleared on or after 24.7.1972. The duty cannot be determined
at the rates specified for yarn under item 18E as applicable
on the dates of clearance of the fabric manufactured by
using the yarn. To hold otherwise would really mean holding
that the incidence of duty on the yarn under the notifica-
tion arises only on the date of clearance of the manufac-
tured fabric. This, in our view, is not the effect of the
notification.
The proviso to Rule 96-W does not help the revenue. It only
95
contemplates cases where there is a change in the rates
prescribed under the notification between the date of pro-
duction of the yarn and the date of clearance of the fabric.
In such a case, an assessee may well contend, but for the
proviso, that the duty having attached itself on the date of
production of the yarn, it has to be calculated only at the
rates then prevalent and should not be recalculated at the
rates prevalent on the dates of clearance of the fabrics.
The proviso precludes such an argument. It would be entirely
superfluous and redundant if, as contended for by the reve-
nue, the liability to pay duty on the yarn itself arises
only on the date of clearance of the fabrics. It is intended
to provide specifically that it is the intention of the
Government that in such a case, the rates prevalent on the
date of clearance of the fabric should govern. The word
’recalculated’ used in the proviso also supports such a
conclusion. This word would be inappropriate if the notifi-
cation envisaged the levy of duty at the point of clearance
of the fabrics, as contended for by the Revenue, for in that
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event, there would be only one calculation as at that point
of time and no question of recalculation would arise. In
other words, the notification grants a concession but only
subject to change in these concessional rates that may occur
until the fabrics made out of the yarn are cleared.
We do not think that the words of the proviso can be
extended to cover a case where the notification itself has
ceased to apply by the date of clearance of the fabric. To
apply the proviso to such a case would result in its ap-
plicability to a totally different situation. It would
involve a comparison of unlikes. It would mean the substitu-
tion of one set of rates prescribed in connection with a
special procedure on the basis of the area of cloth by
another set of rates applicable to yarn in the normal course
which is to be worked out on the basis of weight. This
involves a mix-up of two totally different schemes of levy
of duty on yarn. We do not think it is correct to place this
construction on these provisions. In our opinion, the normal
rates de hors the notification will apply only in respect of
yarn produced on or after 24.7.72 and not to yarn produced
between 17.3.72 and 23.7.72. The assessees having paid at
the normal rates in respect of the latter period were right-
ly held entitled to seek a refund.
We may also point out that the best that can be said for
the department is that the system of compounded levy ceased
only on 24.7.1972. This means that the normal rules will
become applicable. But the normal duty on yarn, effective
from 24.7.72, cannot be retrospectively applied to the yarn
which had been authorisedly removed from the spindles for
captive consumption prior to that date. The fact that
96
the clearance of the fabrics made of such yarn was, after.
24.7.72 would be irrelevant in computing such normal duty
for, yam. There is no principle or statutory language that
compels an assessee to be deprived of the concessional rate
that has been made available to it, under a special proce-
dure, in respect of the yam produced by it and utilised for
captive consumption.
For these reasons, we agree with the view taken by the
Tribunal and dismiss these appeals. We, however, make no
order as to costs.
R.N.J. Appeals dis-
missed,
97